Why I Wouldn't Bother With the Anthropic or OpenAI IPOs

The artificial intelligence (AI) companies behind ChatGPT and Claude may soon be going public. Anthropic, which develops the Claude chatbot, could make its debut by October, while OpenAI, which is the company that owns ChatGPT, may have its IPO later, potentially next year.

There has been an appetite from growth investors to value highly risky stocks at high valuations, as has been the case with Space Exploration Technologies Corp (NASDAQ: SPCX), better known as SpaceX, which went public a few months ago. It briefly soared above a $2 trillion market cap, only to end up crashing afterward and falling below its IPO price.

It was a painful lesson for early investors. And Anthropic and OpenAI could be even riskier stocks to buy when they go public. Here's why I wouldn't bother with either one of them.

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They may be growing fast, but that doesn't mean they'll be good investments

The big intrigue with these two AI companies is that they are early leaders in the chatbot space. And while they are growing, my concern is just how profitable they are -- they would need to be raking in significant earnings to justify valuations of around $1 trillion or higher. Anthropic is reportedly eyeing a valuation of at least $2 trillion.

According to a recent report from the Wall Street Journal, OpenAI's revenue for the June quarter was $6.7 billion, rising from $5.7 billion in the first three months of the year. However, it moved further away from profitability with an increasing loss. Anthropic, meanwhile, appears to be in slightly better shape, more than doubling its revenue to $11.6 billion, reportedly generating a "small operating profit" along the way.

However, the problem is that these businesses are seeking high valuations, while any profits they might achieve will be minimal and cash burn is likely to be high. Plus, with greater competition looming from other chatbots, it may not get easier for them to get into the black and stay there.

The stocks could be far riskier buys than SpaceX

SpaceX is risky, and its valuation is also rich, as its market cap hovers around $1.8 trillion. It has the advantage, however, of already being a leading company in the global aerospace industry, and its Starlink internet business is also profitable and doing well.

With Anthropic and OpenAI, there's likely to be less reason for those stocks to be able to command high valuations. In what's shaping up to be a highly intensive arms race in the AI chatbot wars, there's no guarantee either one will be successful in the long run.

At extremely high valuations, the stocks could be vulnerable to significant declines once they go public. The safest option may be for investors to simply stay far away from them.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.